U.S. taxpayers to foot the bill for a bigger NATO, critics say World Policy Institute notes companies' lobbying for expansion

Greg SchneiderTHE BALTIMORE SUN

WASHINGTON -- Expanding NATO is a boon for U.S. defense contractors but a strain for taxpayers, who will wind up paying for some of the military equipment Eastern Europe needs to join the alliance, according to a study released yesterday by the World Policy Institute arms-control group.

Bethesda's Lockheed Martin Corp. has been the most aggressive defense contractor in pushing for Eastern and Central European countries to modernize their armies, and in lobbying for the United States to help those countries pay for the goods, the study's author said.

But Lockheed Martin is not alone. The first beneficiary of a new Pentagon program that guarantees loans to foreign arms buyers was AAI Corp. of Hunt Valley. Romania got a $16.7 million U.S. loan last year to purchase flying drones from AAI.

"All the machinery of financing and promoting arms exports has been put to work to make sure that if there's going to be arms sales to Eastern and Central Europe, U.S. companies can get the lion's share of those deals," said study author William D. Hartung, a senior fellow at the World Policy Institute of the New School for Social Research.

"But the problem with that, of course, is that a lot of the money is going to come not from the countries in the region but from U.S. taxpayers through these subsidy programs," Hartung added, citing 19 new military aid programs in the region, a $15 billion loan-guarantee program for weapons exports, and direct loan deals.

Most of those loans are high-risk, he said; almost $10 billion in such military-related loans have gone bad in the last decade.

The Senate could vote as early as next week on offering membership in the North Atlantic Treaty Organization to Poland, Hungary and the Czech Republic. The new members will have to spend billions of dollars on weaponry to enable their militaries to mesh with Western forces.

Hartung said the defense industry has been pushing the issue extensively through lobbying, campaign contributions and participation in ethnic advocacy groups. Lockheed Martin and Bell Textron Helicopter Inc. are helping finance a Romanian group seeking NATO expansion, he said, and Boeing Co. is a corporate sponsor of American Friends of the Czech Republic.

The companies work both sides of the issue, promoting expansion to create a new market for Western arms and working for loan and subsidy programs so the countries in question can afford to buy.

A prime example of the mingled interest, Hartung said, is that Lockheed Martin Vice President Bruce Jackson is president of the U.S. Committee to Expand NATO.

Lockheed Martin spokesman Keith Mordoff said he had no comment on Jackson's role as a private citizen, and added that "while Lockheed Martin doesn't take an independent position on foreign policy, we've said several times we're committed to the expansion of NATO. Basically, we feel it's going to stimulate the economies."

Mordoff added that Lockheed Martin's biggest interest in Central Europe involves commercial ventures, such as a joint venture with a Polish computer company and possibly the Intersputnik telecommunications partnership with Russia.

One industry official dismissed Hartung's study because of its source, a privately funded New York arms-control advocacy group. "We wouldn't expect anything else from the World Policy Institute," the official said.

There's no question that the expansion of NATO offers a much-needed new outlet for defense contractors, but most experts say the Eastern and Central European market will take a long time to develop.

"There'll be some business there, but in comparison to what already exists [elsewhere] it's going to be a relative drop in the bucket," said financial analyst Paul Nisbet of JSA Research Inc.

"But it will nonetheless be welcome," Nisbet said, adding that "it may help replace" whatever the Asian economic crisis takes away from the international growth expected by defense and aerospace industries.

Overseas customers have become increasingly important to defense contractors in the wake of the Cold War's demise. Even though overall U.S. defense spending has remained near Cold War levels, Pentagon procurement money has dwindled.

Foreign markets help take up that slack, and also allow contractors to keep production lines warm and costs down -- thereby reducing prices for the Pentagon, the reasoning goes.

Several major defense contractors already have lines on potentially lucrative deals in Central and Eastern Europe. Lockheed Martin hopes to sell F-16 fighter jets to Poland, and Northrop Grumman Corp.'s Electronic Sensors & Systems Division in Linthicum has been marketing air traffic control systems in the region.

Boeing Co. is working to sell -F-18 jets to the Czech Republic, and Bell Helicopter Textron has bought a Romanian helicopter company with the aim of making a big sale to that NATO-hopeful country.